Planners yet to seize the ETF opportunity

Despite the strong growth of investment in ETFs, less than half of all financial planners currently recommend them to clients.

According to the latest BetaShares/Investment Trends ETF report, 45 per cent of planners recommend ETFs – up from 43 per cent a year ago. Another 14 per cent say they “may” recommend them within the next 12 months.

Advisers were involved in only 23 per cent of ETF investment decisions last year, which is fairly consistent with their involvement over the past decade.

Investment Trends research director Recep Peker says: “There is a significant opportunity for advisers to be more involved in ETF investments.

“When we ask people what holds them back from investing, the number one thing they say is: ‘I don’t know what to invest in’. They also tell us they don’t know how to do it. There is a need for more advice in this area.”

Among planners who do recommend them, the big appeal of ETFs is their low cost, as well as their diversification benefits, liquidity and access to overseas markets.

Investors surveyed by Investment Trends say they hold ETFs because they are a cheap, efficient way to diversify their portfolios, they provide easy access to overseas markets and they are easy to buy and sell.

The local ETF market has grown to $35 billion at a compound annual growth rate of 31 per cent over the past 14 years. Investment Trends has forecast that the number of investors using ETFs will grow from 314,000 in September last year to 381,000 by the end of this year.

The profile of ETF investors is changing. Among those who say they are planning to make their first investment in ETFs over the next 12 months, around one-third are Millennials.

The proportion of ETF investors who have their holdings in an SMSF has fallen from more than 50 per cent a decade ago to a little over 30 per cent today.

“The industry used to rely on SMSFs as the driver of inflows. Now it is more diversified,” Peker says.

Among those who are already investing in ETFs, 56 per cent plan to re-invest in the year ahead.

Investors tend to allocate more to their ETFs over time. Investors who have held ETFs for less than two years have an average of 7 per cent of their total portfolio allocated to them, while those who have held ETFs for more than four years have an allocation of 13 per cent.

BetaShares chief executive Alex Vynokur says the next wave in ETF product innovation will include more ethical funds, fixed income and smart beta.

Vynokur says: “We do need to think about our product development carefully. In the US we have seen some product that has stretched credibility, such as inverse VIX ETFs.”